Alert - universal credit

In some areas, new claims for tax credits are no longer possible. Whilst most existing tax credit claimants will not be affected by UC until 2019 onwards, some changes of circumstances can lead to them needing to claim UC instead. A new in-year finalisation process will be used to finalise the tax credit claim of someone who has claimed UC along with a new method of calculating income. See our section on Universal Credit for more information.

Tax Credits: Appealable decisions

Not all tax credit decisions carry a right to mandatory reconsideration or appeal. If a decision isn’t appealable you may want to consider the dispute process, official error or a complaint.

This section sets out the tax credits decisions that can be reviewed under the mandatory reconsideration process and then appealed. You can find out how to start an appeal in the appeals section of the site.

Rights of appeal are granted by statute against (TCA 2002, s 38(1)):

An initial decision on a claim for tax credit (s 14(1));

A revised decision on reporting a change of circumstances (s 15(1));

Any other revised in-year decision altering or terminating an award (s 16(1));

An end-of-year decision leading to a final award (s 18(1) for reply-required cases or (6) for auto-renewal cases);

A decision following an enquiry (s 19(3));

The continuation of an enquiry (appellant may ask for a direction that HMRC must give a closure notice – s 19(9), (10);

A decision on a discovery (s 20(1) – revision of income tax liability, or s 20(4) – fraud or neglect of claimant or representative);

A decision correcting an official error under regulations made under s 21;

The determination of a penalty by HMRC (Sch 2, para 1); and

A decision to charge interest on an overpayment (s 37(1)).

There is no right of appeal against an administrative decision in relation to the recovery of an overpayment, nor against the issue of a notice under s 14(2), 15(2) or 16(3).

One noticeable absence from the list above is a right of appeal against a decision by HMRC to recover an overpayment. Using the appeal rights above, a claimant can challenge a decision by HMRC that led to an overpayment and, if successful, that decision can be reversed establishing that there is in fact no overpayment (or it is less than the original amount).

However, if there is in fact an overpayment (the claimant has received more than their entitlement), there is no right of appeal against HMRC’s decision to recover this overpayment.

Impact of end-of-year s18 decision on appeals against earlier decisions

An interesting question arises about the interaction between an in initial decision on a claim (under s14) and other in-year decisions (under s15 or s16) and the effect of a s18 entitlement decision made after the end of the tax year as the award is finalised, because its common for an appeal against an initial or in-year decision to be still outstanding by the end of the tax year when HMRC are ready to make a s18 decision on the award, and certainly the legislation doesn’t prevent this scenario. This has been explored in several Upper Tribunal cases over the years and, most recently, a 3 Judge panel handed down their ruling (CTC 3228/2015 and CTC 1938/2016), which states:

'As soon as the Commissioners for Her Majesty’s Revenue and Customs have made a decision under section 18 of the Tax Credits Act 2002 for a tax year, any decision made under section 16 for that tax year ceases retrospectively to have any operative effect, any appeal that has been brought against that section 16 decision therefore lapses, the First-tier Tribunal ceases to have jurisdiction in relation to that appeal and that tribunal must strike out the proceedings..’

In practice, HMRC aim to delay making their s18 decision where an appeal against an earlier decision is still outstanding. HMRC confirmed that where an appeal on an earlier s14, s15 or s16 decision is still outstanding, it is HMRC’s current policy to apply an appeal marker to the tax credit system. This should have the effect of preventing the s18 entitlement decision being taken, allowing the appeal to proceed through to conclusion.

The recent decision taken by the three judge panel made clear the effect of taking the s18 decision where an earlier appeal on a s16 decision (or s14/s15 for that matter) is outstanding. The decision did not direct how HMRC manages its policy in these matters, so whether HMRC takes the s18 decision as soon as is practicable regardless of whether an earlier appeal is still ongoing, or indeed it delays taking that s18 entitlement decision, and the judges pointed out merits in applying either principle.

They also confirmed that there may be occasions where the s18 entitlement decision is taken before the appeal is concluded and, where this occurs, HMRC will advise the First Tier tribunal that they have no jurisdiction to hear the appeal and it would be obliged to strike out the proceedings. HMRC will advise the customer that the s18 decision has now been taken and this lapses the outstanding appeal and means that if the customer is still dissatisfied with the s18 entitlement decision, they would then have the relevant Mandatory Reconsideration rights against that s18 decision. It is, therefore, dependent upon two things 1) how soon the claimant appeals 2) where we are in the lifecycle of the tax credits award.

For example:

HMRC upholds its decision on an MR against a s16 decision taken in the 16/17 tax year and an MR Notice is issued to the claimant on 13/02/2017. The appeal marker is removed from the system. The claimant appeals to the First-tier Tribunal within 30 days and they receive it on 09/03/2017. HMRC receives notification of the appeal on 16/03/2017 and an appeal marker is applied to the system. Going forward if the appeal is still not decided when we enter the renewal period HMRC will not take the s18 entitlement decision for 16/17 until the outcome of the appeal

HMRC upholds its decision on an MR against a s16 decision taken in the 16/17 tax year and an MR Notice is issued to the claimant on 13/02/2017. The appeal marker is removed from the system. The claimant doesn’t appeal to the First-tier Tribunal until 31/08/2017 and the Tribunal treat the appeal as “made in time”. HMRC are unaware of the appeal when the s18 decision is made on 04/09/2017 – this decision lapses the s16 decision under appeal and could not have been prevented.

HMRC upholds its decision on an MR against a s16 decision in the 16/17 tax year and an MR Notice is issued to the claimant on 26/07/2017. The appeal marker is removed from the system. The claimant appeals to the First-tier Tribunal within 30 days and they receive it on 24/08/2017. HMRC are unaware of the appeal when the s18 decision is made on 30/08/2017 – this decision lapses the s16 decision under appeal and could not have been prevented.